Inefficient Peace or Preventive War?
Liqun Liu, Tusi (\"Undes) Wen

TL;DR
This paper models how trade barriers can serve as a strategic tool to prevent costly trade wars amid globalization-induced power shifts, explaining persistent trade tensions and cooperation.
Contribution
It introduces a theoretical model showing trade barriers can stabilize peace by reducing incentives for preventive wars, with empirical insights from US-China trade relations since 1972.
Findings
Trade barriers can prevent trade wars by reducing expected payoffs for conflict.
Globalization-induced power shifts increase the likelihood of preventive wars.
Historical US-China trade data supports the model's implications.
Abstract
We study a model of two-player bargaining game in the shadow of a preventive trade war that examines why states deliberately maintain trade barriers in the age of globalization. Globalization can induce substantial power shifts between states, which makes the threat of a preventive trade war salient. In this situation, there may exist "healthy" levels of trade barriers that dampen the war incentives by reducing states' expected payoffs from such a war. Thus, we demonstrate that trade barriers can sometimes serve as breaks and cushions necessary to sustain inefficient yet peaceful economic cooperation between states. We assess the theoretical implications by examining the US-China trade relations since 1972.
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Taxonomy
TopicsPolitical Conflict and Governance · International Development and Aid · Global trade and economics
